4.3.2  Value for money drivers and PPP suitability

PPPs will be considered as a procurement option where threshold values are met and where value for money drivers exist. PPPs may be a suitable procurement option if the following value for money drivers are present:

•  sufficient scale and long-term nature. The project represents a major capital investment (over $50 million) with long-term requirements. The value could include bundling together a small number of similar projects. Also, projects that lie below the capital expenditure threshold can nevertheless have a significant service component and therefore a significant value in net present terms, and can exhibit other value for money drivers. Such projects may be suitable for PPP procurement and may be considered in consultation with the relevant PPP authority.

In determining whether the scale of a project is sufficient, the size of transaction costs to government of procuring the project as a PPP should be considered.

Based on experience to date, projects with a whole-of-life net present value greater than $100 million attract most market interest;

•  complex risk profile and opportunity for risk transfer. More rigorous risk evaluation and transfer to the private sector of those risks it is best able to manage, including those associated with providing the specified services, asset ownership and whole-of-life asset management;

•  whole-of-life costing. Full integration, under the responsibility of one party, of up-front design and construction costs with ongoing service delivery, operational, maintenance and refurbishment costs. This delivers improved efficiency through whole-of-life costing as design and construction become fully integrated up-front with operations and asset management;

•  innovation. As the PPP approach focuses on output specifications, this provides a wider opportunity to use competition as an incentive for private parties to develop innovative solutions in meeting these service specifications;

•  measurable outputs. The nature of the services enables output specifications and a performance-based contract;  

•  asset utilisation. Reducing costs to government through potential third-party utilisation and through more efficient design to meet performance (e.g. service delivery) specifications;

•  better integration of design, construction and operational requirements. Ongoing operational, maintenance and refurbishment requirements become a single private party's responsibility for the length of the contract period; and

•  competitive process. A competitive market exists and the use of a competitive process helps to encourage the private party to develop innovative means of service delivery while meeting government cost objectives.